For any secured party creditor, the completion and filing of a UCC-1 is something that needs to be understood if they want to properly secure the loan. There are situations that have come into play where the creditor may have had the borrower fill out the form, but then have just filed the form away with the person’s file thinking that was enough. Unfortunately, just having the form filled out is not enough. The form must be filed properly in order for the lien on those items to be perfected. Otherwise, it is just like creating an unsecured loan.
A UCC-1 is a form that is used by secured party creditors to protect themselves in case the borrower defaults on a loan. These forms and the filing of the forms are governed by Section 9 of the Uniform Commercial Code. While the specifics may vary from state to state, the basics are pretty much the same, regardless of in which state the creditor is doing business.
First of all, the UCC-1 itself must be filled out correctly. The form itself is used to list the collateral pledged by the borrower that will be used to back the loan. This can be anything except real estate or anything with a title, such as an automobile. Real estate can only be used to secure a mortgage or equity loan. Any loan that will be secured using an auto will require the title so the lender can put a lien on the title. Any other personal property that is used as collateral will have to be listed on the UCC-1.
While it is only necessary to provide a general description of the item on the form, it is recommended that secured party creditors have the borrower be as specific as possible when filling out the UCC form. It is much better to know exactly what is being secured rather than just a general description, as this could cause problems in the event the property eventually does have to be picked up and sold. For instance, a creditor is much better off knowing that the borrower has pledged a specified brand of 42-inch TV as part of the collateral rather than just a television. It is also easier to figure out the approximate value of something with a more specific description.
Once all of the items that are being pledged as security for the loan are listed, the form must be signed by the borrower and the creditor. It then must be filed with the county courthouse or Secretary of State’s office, depending on the state. This will prefect the lien and the loan will now be secured with the property that has been listed.